THE LONG-RUN ADVANTAGES OF CENTRALIZATION FOR COLLECTIVE ACTION - A COMMENT

Institutional design can affect the logic of ongoing collective action in groups with heterogeneous members. This article corrects a mathema tical error in a seminal article by Bender and Mookherjee (1987) and s hows how the amended result strengthens the case for centralized monit oring and enforcement mechanisms. In solving their original model, Ben dor and Mookherjee neglected that groups under centralized control wil l become increasingly talented over time, as headquarters detects and replaces untalented members. Expected improvements in the talent of th e group should heighten the incentive for its members to work and curt ail the incidence of costly free riding, as well as reduce the average per-worker cost of production. These gains in efficiency will not mat erialize in decentralized regimes, where the fraction of talented memb ers will remain constant over time. Depending on the effectiveness of monitoring in the centralized group and the level of patience and tale nt in society as a whole, centralized regimes can produce greater grou p welfare than decentralized ones, even when decentralized institution s operate flawlessly.